First Bank of Delaware Loses Charter Over AML Problems

First Bank of Delaware was stripped of its state charter to operate and the bank was penalized $15 million by federal regulators for failing to implement an effective anti-money laundering compliance program.

The bank, based in Wilmington, settled with the Federal Deposit Insurance Corp. and the Treasury Department’s Financial Crime Enforcement Network, or Fincen, which together found that First Bank failed to implement an effective compliance program with internal controls designed to report evidence of money laundering or other suspicious activity.

First Bank also settled charges with the Justice Department related to the same misconduct. The Justice Department alleged that the bank, from 2009 to 2011, violated the Financial Institutions Reform, Recovery and Enforcement Act by originating withdrawals on behalf of fraudulent merchants, causing money to be taken from the bank accounts of consumers.

The bank established direct relationships with several fraudulent merchants and third-party payments processors working with additional fraudulent merchants, the Justice Department alleged.

It originated hundreds of thousands of debit transactions against consumers’ bank accounts, using “remotely-created checks,” a type of transaction the Justice Department said is widely known in the banking industry, consumer protection groups and by law enforcement as used by fraudulent companies.

The Justice Department alleged that First Bank knew, or at least turned a blind eye, to the fact that the authorization for the withdrawals was obtained by fraud.

First Bank was ordered by the FDIC and Fincen to pay $15 million. It will also maintain an account with $500,000 to pay consumer claims arising from the alleged conduct, the Justice Department said (pdf).

“To make money, First Bank of Delaware entered into risky lines of business and chose to disregard its Bank Secrecy Act responsibilities,” said Jennifer Shasky Chavelry, the director of Fincen, in a statement (pdf).

On Friday, the statement said, The Bryn Mawr Trust Co. bought some of the bank’s assets and assumed its depositary responsibilities. Delaware’s Office of State Bank Commissioner stripped the bank of its charter to operate, and the FDIC terminated its insurance on depositors of First Bank.

First Bank said in a statement (pdf) that Bryn Mawr paid $8.7 million in cash, and the bank was dissolved immediately following the sale.

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